Hi all, So I've recently signed a contract to buy a first home. I've got the 20% deposit and recently my parents told me that they are happy to give me some money to help with boost my deposit to reduce my bank loan and mortgage repayments. I'm just applying for finance at the moment and when I told the bank about my parents' gift, they ask for a "Gift Letter". Of course I'm happy to accept my parents' generosity but given that I already have the basic 20% deposit, I want to know how this may affect my financial future: - How will this change the way the bank sees me in their risk profile? Will I be a "higher-risk borrower"? - Is the gift letter legally binding? (bank didn't ask for a statutory declaration, just a simple letter); will my parents have to prove anything or be liable for anything? They are retired. - Will this be in my credit record and affect my future loans? (e.g. if I want to buy an IP in the future or if I want to refinance with another bank) Thanks all, looking forward to the expert insights here.
There are a lot of questions you might not be aware of. Pension impact on parents? Do you have siblings? Impact on inheritance? do you have a mortgage broker? (You should). should you take out the 80% lvr, or even 90% lvr, and put the extra cash into offset instead? Do you plan on buying investment property, and or plan to move out later and make this an investment property?
Bank probably want evidence it is a gift, not a loan to be repaid. If your parents are on a pension, or will apply within 5 years, this may impact them.
Parents a few years away from pension age but I suppose this could impact their "assets". I do have two brothers, neither of whom has bought a home yet but I'm assuming my parents will gift them the small amount that my parents have gifted me. We have told them not to worry about inheritance and should instead plan their money well for the remainder of their lives. No mortgage broker because I'm borrowing from UBank (which doesn't have any brokers to reduce cost)...
You want it documented properly anyway. Say your parents pass away before your brothers buy property. It looks like ubank doesnt have an offset account. Do you understand how an offset can be used effectively? Esp if you move out later on and rent it out? To reduce costs for them, yes. There are interest rates, and then there are costs (to you). Probably nothing you can do about it now if youve already signed a contract, but learn and you will probably want to refinance soon.
Its just a letter stating that the money is a gift and that there is no expectation to repay, as you do not 'owe' them anything. It doesn't change anything with how the bank views you, its merely to ensure you have no liabilities beyond whatever debts they have already been told about. It covers the bank, if they force a mortgagee sale and you parents come out of the wood work trying to claim some entitlement to the proceeds becaue of that money. (Not saying your parents would do that, just that the bank is acting to cover themselves just in case, they don't want anyone else having any claim to the property).
Good to look at the pension gifting rules as they might want to gift to your brothers as well before they reach pension age and its included assets test. Its good to be planing for the pension well before they qualify for it. Hopefully you can gift what you like before you reach pension age but certainly after you can only gift 10K a year. If both bought at same time or they are gifting more than 10K then that could have an undesired impact.
It won't change anything, it's a simple gift letter that's generally not worth the paper it's written on. And it's a normal process, some banks actually ask for a stat Dec.
Well, the loan I'm currently applying for is the fixed 1.75% from UBank for 3 years; I can theoretically try to finance if needed if my personal situations change -- e.g. I want flexibility of a offset account. At the moment, given the low interest rates, I'd prefer to keep extra savings to invest in other things rather than to reduce the already low interest rate I'd have to pay for the mortgage. As I'm only buying a first home, it's going to be a relatively humble abode. It's more likely that this home becomes an investment property in 10 years time -- I'd upsize to a bigger family home if I have a family.
As mentioned, given the already low interest rate and no need for flexibility, I'm happy to keep the savings for other investment rather than keep it in an offset to reduce mortgage interest. I did previously have a mortgage broker but he couldn't get a cheaper deal than UBank and wasn't particularly helpful with providing different loan options other than just listing out all the basic home loans. And these basic home loans couldn't even compare with UBank's rate anyways. Could you enlighten me as to what type of home loan/features you are with and your reason for choosing this? Happy to learn.
I'm not too familiar with Capital Gains Tax but I have heard that there could be implications for future capital gains tax if I sell the home after making it an investment property for a few years prior? For example, let's say my parents gifted me $20k. I use it as part of my deposit for this home. To make things easier, let's say this home is an investment property. After 10 years, I know I'd have to pay the capital gains tax since it was an investment property for 10 years. But will I also have to pay a FURTHER capital gains tax on the $20k that my parents gifted me since the government can deem it 'wasn't my money' in the first place and is more like an 'inheritance'? Thanks for your thoughts.
Buying a new home and renting out current home Theres a lot of reading about this, but worth it, imho.
This is not how it works. Receiving a gift, or a loan, won't affect CGT. inheritances are tax free generally too.
So a low rate fixed loan may in no way be appropriate and may cost you lots of mulah. Know nil about your circumstances, but best practice here for someone that is rate focussed would often be Split out the additional deposit as an IO variable Loan with 100 % offset to park the gift - nil interest payable, and preserves the tax deductability Balance ideally as IO fixed, but you wont get a decent rate for that, so youd meet half way and gp PI on that with min repayments. Part of the challenge is we dont know what we dont know, and many times our credit advisers dont know how to challenge their clients thinking. Suggest you seek specific tax and credit advice on this and importantly the future likley outcomes if you go the low fixed rate only focus. ta rolf
Thats Rolf, for your suggestion. Could I clarify what you mean by tax deductability here: "Split out the additional deposit as an IO variable Loan with 100 % offset to park the gift - nil interest payable, and preserves the tax deductability"? Would you be able to use an example, let's say $500k house. $100k deposit. $50k gift. What's the best loan for this?
